Speaker 1 (00:12):
Welcome everyone. I'm Michael Harris, Vice Chair of New York Stock Exchange, and we're thrilled to welcome Scott Voss of HarborVest. Scott, thanks for being here.
Speaker 2 (00:20):
Thanks for inviting me. Yeah. I'm, I'm really looking forward to our discussion.
Speaker 1 (00:23):
Absolutely. Absolutely. I know you and I have talked a whole bunch in the past about the interplay between, uh, private public markets. You guys see a lot of both sides. Um, and I think it's a fascinating time as we think about everything that's happened over the course of the last six months, but really not just the last six months, but really the last year- Yeah. ... plus. Um, and you guys have been involved in a lot of some of the largest, uh, PE backed deals, um, not just on the equity side of the business, but also on the, uh, uh, credit side of the business. So I'd love to kind of get your perspective, maybe taking us a step back. How do you see the landscape right now as you look back over the last, you know, year plus in terms of the marketplace?
Speaker 2 (01:00):
Yeah. So there's an interesting dynamic playing out where there is this convergence between public and private markets. There's actually a trading that's happening between them. If you look at the companies that went public last year, the most highly valued companies, they
Speaker 3 (01:14):
Tended to
Speaker 2 (01:14):
Trade into the public markets at what it might, might have been valuations of five billion up to 20 billion. But at the same time, if you looked at the largest take private or buyout deals that were getting done, they were trading out of the public markets- Yeah. ... at the same price. So that seems to be the, the sweet spot where the two markets are, are trading. And then just with all the technology that's coming in on both sides, the line I think is frankly blurring between what is being public versus what is being, being private.
Speaker 1 (01:42):
Yeah. Yeah. And is that a function of just kind of from a valuation perspective, is that more of a function of the sophistication of the investors that you're working with who just now have more of a preference for being indifferent between those two marketplaces? Like what's causing a lot of that? Well,
Speaker 2 (01:55):
I think what's driving a little bit of the convergence is just private markets are now able to execute at a scale- Yeah. ... that they were never able to execute at before. And there has been an overarching theme where, where companies are staying private longer for- Yeah. ... whatever reason it might be. And, and that just allows for private equity to participate in these companies- Yeah. ... at valuations that it hadn't previously. Um, we've seen an evolution on the credit side where, uh, part of the infrastructure to get deals done in private markets is there needs to be credit available to build a balance sheet to buy a company 10 or 15 years ago. Yeah. A lot of that capital came from banks. Today it's coming from this new source called private credit.
Speaker 1 (02:33):
Right. For sure. And at least on the equity side, there's still this recurring theme where for a lot of the traditional private equity vehicles, there's been relatively small amount of distributions that have taken place- Yeah. ... over the last 10 years. So there is somewhat of a pressure, at least from the outsider's perspective, to see a lot of companies or at least a lot of investors to try to return capital- Yeah. ... at some point.
Speaker 2 (02:53):
Yeah.
Speaker 1 (02:53):
Um, do you see that still being the case?
Speaker 2 (02:55):
So that, that narrative, I think if you asked me this a couple months ago, I would've said, "I think that will fade to the back." So one of the, one of the measures that we use to, uh, basically test the health of the markets and the liquidity that we're seeing is we look at the percentage of NAV that's distributed out through distributions. And over the long run in our portfolio, for example, it's average 20% of NAV is distributed out per year to, to investors, but there's volatility around that. On the low, it might be 10%, on the high, it might be 30%. Over the last couple years, we've been into the mid teens and- No, interesting. ... and I felt like liquidity was gonna reach up to that average 22% line this year and even the first quarter we had some record deals that really make the year look really good so far, but obviously there's a lot of uncertainty in the market right now.
Speaker 2 (03:44):
But, but a data point, which is interesting,
Speaker 2 (03:47):
Private markets have cycles like all other markets. Yeah. And probably the bottom of the cycle was about 18 or 24 months ago. I'd say the middle of 2024. And if you look at exit activity at the end of 2025 and take out what I call the COVID anomaly year where there was a lot of stimulus that was put into the market to, to create liquidity, 2025 was actually a record year for exits- Wow. ... in private equity. And it's, it's kind of lost on, on people. So, uh, there are companies that are held in portfolios that are aging and are mature. The owners of those assets I think are getting to the point where they need to sell them.
Speaker 3 (04:23):
Yeah.
Speaker 2 (04:23):
And when that happens, I think we'll, we'll really see that liquidity part of the, the market pick up. When you look at some of the
Speaker 1 (04:29):
Kind of industry trends in terms of the exits, what are some of the things that you're seeing? Which sectors seem to be more active?
Speaker 2 (04:34):
Well, not so much industry, but it's, it's actually an innovation within the market and your, your typical path to exit would be IPO or M&A- Right. ... to either another sponsor or a strategic acquirer, uh, as, as we just talked about, that's been a little bit more scarce- Yeah. ... than we've used to see in the past. And so the secondary market, which used to be kind of a, what I'd say a more tactical type of strategy within private equity has entered the mainstream. And if those other paths to exit aren't available, sec- the secondary market is available to facilitate, uh, liquidity for investors. And so that's a big theme and trend that we're, we're seeing. I'd say also if there, if you're anywhere adjacent to this whole AI theme, we're seeing a lot of- Yeah. ... M&A happen there. Yeah. It's, it's companies recognizing that they need to AI enable their business in some way, shape or form, and they're going out and buying that AI enablement.
Speaker 2 (05:29):
I, I think ServiceNow on the software, enterprise software side is a, is a great example. They've been a, a very acquisitive, uh, company.
Speaker 1 (05:37):
Yeah, I was looking at a recent stat from, uh, some of our partners that, you know, if you look at M&A activity, I thought was interesting. There's been about roughly little over a trillion dollars worth of M&A activity so far in 2026. That's up almost 55% versus last year.
Speaker 3 (05:52):
Yeah.
Speaker 1 (05:53):
Uh, and also when you look at kind of the largest part or the most active part of the M&A calendar, it's deals that are $10 billion and up. Yeah. Um, which is kind of fascinating just when you look at just the backdrop of everything else that's going on in the marketplace. So,
Speaker 2 (06:06):
So that's an amazing number, but I, I think we're gonna probably talk more about this. There's a bifurcation that's happening in the market. Yeah. Captured in that number is Alphabet's acquisition of Wiz, which was a $32 billion acquisition, and also SpaceX's acquisition of XAI is captured. So you got 32 billion and 50 plus billion captured in that, that very impressive number, right?
Speaker 1 (06:29):
Absolutely. And, you know, speaking of SpaceX- Yeah. ... obviously some monster IPOs that are probably on the horizon that have been widely reported in the press, whether it's that one, whether it's some of the other names that are more focused on, uh, uh, AI, kinda how are you thinking about this, uh, from the seat that you sit in?
Speaker 2 (06:44):
Uh, it, that also is fascinating. These are, uh, unprecedented type of transactions. So whether it's SpaceX or Anthropic or OpenAI, you know, they're talking publicly about- Yeah. ... potentially raising 50 to 75 billion of equity at valuations that could be 500 billion, a trillion or 1.5 trillion dollars in size. Uh, to put that into perspective, in the US, the largest IPO ever by value was meta. It happened 13 years ago. Right. Right. It was 104 billion. So you're talking about three companies all potentially this year raising fi- be- being valued at five, 10 or 15 times what has been the greatest of all time- Yeah. ... for the last 10 years. And then further, if they raised the 50 to 75 billion, this, this is astounding. Globally last year, there were roughly 1,200 IPOs, mostly dominated by the US and China. Combined, they all raised 170 billion dollars.
Speaker 2 (07:41):
So we could see three companies potentially raise as much or more as the entire public market raised last year. Yeah. And last year was a rebound year. Right, exactly. <laugh> Exactly. Yeah. Yeah, exactly. Exactly. So it's, it's, it is unprecedented and, and I think when I look at those, we need them to be successful, right? Those, those have to be good story IPOs when they happen.
Speaker 1 (08:02):
Yeah. 100% agree. 'Cause I think the, the one element that kind of gets lost in that story is that those are obviously, you know, market transactions. There's gonna have enormous impact on the overall marketplace, but there's also an enormous pipeline of other companies- Yeah. ... that wanna go public behind it. Yeah. And so the success of those companies is gonna be entirely dependent on how the rest of the marketplace reacts to those- And- ... Small number of companies.
Speaker 2 (08:26):
That's right. And I think when we look past those three, four, maybe five companies, the market's gonna take you to that value that's five billion- Yeah. ... to 20 billion, right, where core weave and others went out last year and, and I'm gonna look at the health of those IPOs as, as much as I'm gona look at the health of the top two or
Speaker 1 (08:45):
Three that we just talked about, right?
Speaker 2 (08:46):
Absolutely.
Speaker 1 (08:47):
Absolutely. Yeah. You know, another theme that you, you touched on in the beginning is just kind of the overall buyout market. Yeah. Um, and obviously last year you saw some record transactions. How are you seeing that market, uh, in the current environment?
Speaker 2 (08:58):
Yeah. So, so last year, um, kind of lost on people as well. I call it the greatest of all time year. We saw the largest buyout ever done- Yeah. ... which was the take private of electronic arts. And then along with that, where JP Morgan stepped up and went on risk- Yeah. ... for these entire 20 billion, that was the largest syndicated loan offering I, I believe- Yeah, it is. ... ever done. Absolutely. So, so that was quite, quite impressive. Um, I think as we, as we alluded to before, there are a number of companies that have sat in portfolios going on now six or seven years and those owners of those assets need to look to sell those assets or perhaps trade them within the private markets. I think to the extent that the credit markets are stable and you can borrow money to build a balance sheet to buy a company, uh, that sponsor to sponsored deal might be a comeback deal- mm-hmm.
Speaker 2 (09:48):
... for, for 2026.
Speaker 1 (09:50):
Interesting. Yeah.
Speaker 2 (09:50):
Interesting.
Speaker 1 (09:51):
Any particular sectors that you think are gonna be probably more active in this year's market for, uh, for buyouts?
Speaker 2 (09:56):
Well, one sector that was really active for two decades, frankly, was the software sector. Right. I, I think that'll be less active, just given all of the uncertainty around the AI business model disruption, but also, um, capital structures that might be associated with some of those companies. Uh, uh, there, there clearly is a move in our world towards infrastructure So if you l- look at market share and you, you look at venture growth equity, leverage buyup, then also secondary and infrastructure- Yeah. ... you combine the secondary and infrastructure and it's actually taking share in transaction and fundraising from, from those other parts- Interesting. ... of the market. Yeah. And, and part of that trend is the, the liquidity that we just talked about, but also the infrastructure now with, with, uh, data centers, power, compute all being front and center, we need to fund a lot of these
Speaker 1 (10:45):
Projects. Right, right. I, I saw the recent stat was if you look at the amount of, uh, committed compute infrastructure build out from the hyperscalers, it's somewhere between 500 to 600 billion dollars- Yeah. ... projected for this year, 2X projected over the course of the next two years, you know, the actual amount of capital that's required for the build out is enormous.
Speaker 2 (11:03):
And, and that number is only, only gonna go up. Absolutely. You can go look at reports from, you know, JP Morgan or Morgan Stanley from maybe six months ago and they predicted that type of spend would be a trillion dollars- Yeah. ... through 2030, and now we're already halfway or more towards that trillion dollar number.
Speaker 1 (11:17):
Absolutely. Yeah. Absolutely. Yeah. Um, you mentioned earlier, um, AI, you mentioned software, um, that narrative has been front and center, especially if you, as you look at the early part of Q1. Yeah. Um, that's had a huge impact on the valuation for a lot of software stocks. Um, you know, how do you kind of think about that, uh, that narrative now?
Speaker 2 (11:37):
I, I think investors are taking a much closer look at the underwrite at the asset level- mm-hmm. ... of every software deal. What is their business model? How are they built? So if, if I wanted to simplify it, I could go back before, you know, February 3rd when cowork was released and a lot of what you heard is what is the total addressable market? You know, is this company a rule of 40 or a rule of 80- Yeah. ... company? Um, what is the, you know, revenue retention rate? Those were the things that you talked about. Now you talk about, is this a vertical or horizontal SaaS company, um, is there proprietary data that the customer is using to inform their decision, which is not third party data that kind of, um, I guess, uh, makes the co- makes the software less differentiated. Is there a transaction layer?
Speaker 2 (12:25):
Yeah.
Speaker 3 (12:26):
Does
Speaker 2 (12:26):
Your software move money or is there compliance involved, which, which makes it harder to pull out. So it's no longer total addressable market in rule of 40, it's these other nuances that are related. I think what it's prompted a lot of these companies to do, I would imagine if you're sitting in the boardroom, they're all talking about how do we maneuver ourselves into an area where we have a bigger moat? Yeah. How do we evolve our business or a business model to do that? And I think a lot of companies will be successful doing that and you'll see it as their public market stocks rebound and, uh, which, which ones are winning versus which ones are not. The other consideration is, um, what, you know, what is the capital structure of those companies- Yeah. ... because that's gonna play another factor. If, if they levered up three or four years ago, debt was cheap, the refinancing window is quickly approaching and it's gonna cost them more to refinance and, and that's probably gonna be a bigger impact that they're not gonna be able to maneuver around like they can when they involve.
Speaker 1 (13:22):
Yeah. I feel like there's a, a huge part of the narrative that is, you know, on one part just pure business related, but the other part is just more refinancing risk related. Yeah. And there's a wall of about 400 billion dollars worth of capital- Yeah. ... that needs to be refinanced over the course of the next three years. And so I think there's gonna be a differentiation among companies that are gonna be much more, uh, impacted by that- Yeah. ... versus those whose business models are really more insulated from that.
Speaker 2 (13:46):
Yeah.
Speaker 1 (13:47):
So-
Speaker 2 (13:47):
And, and you see, if you just look at the public markets and, and I think about our enterprise- Yeah. ... core to the way we run our business every day, it's Salesforce, it's Workday- Yeah. ... it's ServiceNow, it's Adobe. You know, those are the big companies, they're all facing the same pressure. Everyone is, every one of those companies has seen their public market stock price decline by 25 to 40%- Yeah. ... since the peaks. So that kinda tells me this, this compression and valuation is pervasive, right? It's a reset of price based on what we know AI can do for us going forward.
Speaker 1 (14:20):
Absolutely. Yeah. Absolutely. And I think the other narrative that sometimes gets lost as well is that there's an opportunity here as well- Yeah. ... for some of these companies as well. And as much as there is an efficiency push that all these companies are trying to look for, there's also a revenue opportunity as well that could be unlocked.
Speaker 2 (14:34):
That, that's right. I think certain companies are definitely positioned to catalyze their business by deploying AI and AI enabling their company. And, and that's a thesis, frankly, that many private equity firms are, are buying into and if they do it today, they can actually buy in at a much cheaper price than they were able to buy in at maybe six, 12, 24 months ago.
Speaker 1 (14:54):
Yeah, for sure. Yeah. Absolutely. Absolutely. You know, we, um, talked a little about AI, we talked a little bit about, uh, software. Another area that HarborVest is pretty actively involved in is defense and defense tech. Yeah. Um, kind of how do you see that narrative, uh, playing out over the next couple of years?
Speaker 2 (15:10):
Yeah. So, you know, this is the interesting conversation I have with our limited partners right now. If you looked at our marketing decks or even the PPMs that we invested behind 10 years ago, they all talked about globalization. It was, uh, you, you could get geographic diversification by investing in multinational companies that were in jur- jurisdictions around the world-
Speaker 3 (15:31):
Yeah.
Speaker 2 (15:32):
... that sourced globally and sold globally, but now, you know, we're, we're becoming much more closed as, as economies. And, and so if you read the PBMs today, they talk about resilience and national defense and, you know, building up this capability that kind of moves us away from that unified global economy and it's definitely a longer term thesis that, um, I think investors are, are getting behind. They see it as a tailwind,
Speaker 1 (15:59):
Right? Yeah. And that's something that's also kind of a global thesis as well. Yes. It's not just US-centric- Yeah. ... that's gonna impact companies that are based in Europe, companies that are based in Asia as well. Yeah. They're gonna look at their own sovereign concerns as being something that's important from a supply chain perspective.
Speaker 2 (16:12):
It's, like, the way I think about it, we all know the US, but if you go to Europe, they're, they're having their own kind of unique awakening. Yeah. It's almost like a modern day renaissance because they realize they gotta become self-sufficient. Yeah. They have to invest in defense and, and other things. And then obviously in Asia, you know, it is, although it's not only about US versus China, that's kinda core to what's going on. And, and now the Middle East has kind of- Yeah. ... negotiated its way to the table and it's a bit of a skilled hedger here because it, it can play both sides- Right. ... of, of the game. And, uh, and obviously they're trying to diversify themselves away from being oil economies and they're investing in a lot of these newer industries that we're, we're talking about a- advanced aerospace, for example.
Speaker 1 (16:52):
Yeah, yeah. Do you see kind of the, the broader opportunities being more on the supply chain part of that, uh, set or more on the defense part of, uh, is that
Speaker 2 (17:02):
... Uh, that's a good question. I'm not sure I, I have a, a great answer for it. Or more
Speaker 1 (17:05):
Company specific,
Speaker 2 (17:06):
Maybe I
Speaker 1 (17:07):
Imagine, but-
Speaker 2 (17:07):
But, but, but here, on the supply chain side, it started with COVID, right? Yeah. You, you're, you had this supply chain disruption that you had to figure out. So I think the direction of travel started then, and it's only accelerated now that we have all of this geopolitical, uh, all of these geopolitical variables- Yeah. ... that we need to navigate. Yeah.
Speaker 1 (17:26):
Yeah, totally agree. Yeah. Um, I know that every year you guys come out with a quarterly podcast where you have your predictions. Yeah. Um, you know, give us a, a little bit of a walkthrough in terms of some things that you're thinking, you're seeing and, uh, what you're predicting for, uh, coming quarter.
Speaker 2 (17:40):
Yeah. So I'll give you a, one of them kind of is our ... I'll give you two that are kind of playing out already. Um, the first is just private markets executing at scale- Yeah. ... which we've touched on. I call it the 50 billion, the 500 billion and the $5 trillion club, and I, I'll work my way backwards on that. On the $5 trillion club, it's, it's the public company crossing that $5 trillion valuation. You know, NVIDIA was the first to cross the line, but Alphabet and others are waiting in line to cross that line as well. So I th- I think that becomes a club of one to a club of some. Um, within the venture business, we've seen, um, companies raise in the private markets at valuations of 500 billion or greater. Right now, it's, it's SpaceX and OpenAI and Anthropic is kind of moving in that direction.
Speaker 2 (18:24):
Yeah. Yeah. So it's gone from a club of one to a club of what will be some. And then we touched on the EA deal, the $55 billion buyout that was the largest ever. And I think we're gonna see more buyouts at that, at that scale. Uh, the other prediction, which I was kind of vague on, um, it, it's, it was real, really related to what keeps me up at night and I call it the consensus risk trap and, and, uh, in, in very simple terms, last year I, I identified the top 10 themes that I thought defined private markets and then I fed them into an LLM and I asked the LLM to stack rank them based on media coverage. And for the most, in the most cases, the media coverage was very positive. And I think we always have to be kind of looking around corners- Yeah.
Speaker 2 (19:06):
... and assessing the risks. And top of that list was an AI valuation reckoning. I didn't think it would happen to the software industry, but it kind of happened. Interesting. Number two on that list was private credit. And, you know, we all know with a lot of the, the news around, um, you know, Blue Out putting up its gates and, and some of the other redemption limitations that that also has become- Yeah. ... front and center. And on that stuff, I, I think within private markets,
Speaker 2 (19:30):
Uh, they're nuanced and different from public markets and it's the responsibility of us, the private market practitioners to go educate the broader market so they know what those nuances are because there is confusion around some of these things when they get reported on- Yeah. Yeah. ... in the press. I
Speaker 1 (19:45):
Mean, I do think that there's a narrative that sometimes gets lost in terms of grouping private credit all within one bucket. Yeah. And there's a huge, huge difference between certain areas of private credit versus public BDCs versus private BDCs versus- Yeah. ... you know, direct land lending arrangements. So kinda how do you think about your own exposure, how do you think about the areas of opportunity- Yeah. ... um, and the areas where you think maybe the popular press may have gotten the wrong narrative in terms of private credit.
Speaker 2 (20:13):
So the first thing I'll say with kind of the nuance that you identified within the portfolios, it's not broad sweeping and I think we should condition ourselves for this going forward. The dispersion of outcomes in portfolios, whether they're public- Yeah. ... or private is gonna become much greater. And the differentiation is gonna be at the actual underwriting of the, the individual asset. Um, for us personally on the private credit side, we're very active. It's fundamental to our business. Yeah. We are a provider of private credit to the mid-market buyout world. You know, in many cases, those are basic industry businesses that, uh, will probably be AI enabled but not be AI disrupted. Right. And credit is critical to, uh, the cost of capital to grow a company. Right. And, uh, and so we feel pretty good about where we're positioned, but, but- Those are also probably cashflow generating
Speaker 1 (21:04):
Heavy
Speaker 2 (21:04):
Asset
Speaker 1 (21:05):
Businesses that are a little easier to underwrite, so-
Speaker 2 (21:08):
That, that's, that's exactly right. And with all of the capital flowing into private credit and to, to the, to the credit of the industry, it's innovated- Yeah. ... but sometimes that innovati- innovation, you know, needs to be poked at a little bit, right?
Speaker 1 (21:21):
Yeah, that's fair. Yeah. That's fair. Yeah. Yeah. Were some of the opportunities that you think of when you look at, uh areas of weakness within private credit where there's probably gonna be more news that comes up over the course of the next year. Is it mostly in the BDC world or is it ...
Speaker 2 (21:35):
Look, I think you touched on it. It's, it's this refinancing risk and- Yeah. ... and what, uh, what are the terms of the debt look like that you financed three or four years ago? Have you been paying interest on that debt or is it, uh, pick preferred and is it growing in your balance sheet? Yeah.
Speaker 3 (21:51):
So that's one
Speaker 2 (21:52):
Question. I do think there's an opportunity, uh, I, I referenced the secondary market becoming mainstream that's mostly been private equity related. Because of where private credit is in its lifecycle, it is now ready for a secondary market to step in and provide a liquidity solution that may not be the traditional liquidity event. And, and I think that's gonna be a big story- Yeah. ... that we hear a lot more about throughout the year.
Speaker 1 (22:15):
Makes sense.
Speaker 2 (22:16):
Yeah.
Speaker 1 (22:16):
You know, you mentioned earlier kind of the first theme was, um, I think about it in terms of just scale- Yeah. ... just broadly speaking. And there's been a rush to scale in many parts of the industry, whether it's the sell side business, the buy side business, you, you know, you mentioned in terms of financing and M&A, um, where do you see the opportunities in, uh, maybe the mid-cap area or- Yeah. ... small cap area because that's obviously an area which maybe hasn't gotten as much attention and- Yeah. ... may offer an opportunity. Uh,
Speaker 2 (22:42):
And, and I think that's a part of the market that won't evolve as radically- Yeah. ... as the larger end of the market. I, I think private markets are gonna bifurcate and when somebody says, "Do you have a private equity allocation?" And they say, yes, your next question should be, how do you have it? Right. Because I think at the large end of the market, it almost looks a bit like an oligopoly. It's a winner's take most that's, that's featured by 10 firms, but when you
Speaker 3 (23:06):
Move
Speaker 2 (23:07):
To the mid-market, it still looks like it has in the past where there could be thousands of firms that are executing with imperfect information or information asymmetry and, uh, and so I think there's two opportunities there and frankly, I think as we get more data, there's gonna be a difference in both dispersion in those portfolios, but also performance in those portfolios. Yeah.
Speaker 3 (23:28):
Yeah.
Speaker 2 (23:28):
In, in the mid-market, there's gonna be greater dispersion, but if you're really good at what you do and you have an, an asymmetric information advantage, you should be able to actually benefit from that dispersion and move higher up the dispersion curve. Right.
Speaker 1 (23:41):
Yeah. Makes sense. Yeah. Makes sense. You know, another area that we talked on kind of taking a little bit of a shift is, you know, we talked about, um, AI, the need for power and infrastructure is being kind of a core theme to the rollout of that, uh, area. Um, renewables hasn't been really talked about as much-
Speaker 3 (23:59):
Yeah. ...
Speaker 1 (23:59):
Um, has been a little bit kind of put on the backburner of the curse of the last year or so, but, uh, the need for power is obviously gonna include renewables as a core theme- Yeah. ... um, going forward. Just how do you think about, uh, that as a part of just the overall investment, uh, thesis?
Speaker 2 (24:16):
So this was another one of my predictions and, and the, the headline is renewables out of necessity, not out of nicety. And, and your narrative that you're framed, I think is right, but it's a narrative for us here in the United States. When you go to Europe or you go to China, you can see them investing- Absolutely. ... heavily into renewables. Absolutely. But I do believe that because of the demand for power that AI is creating, it's not gona matter where your energy comes from. Does it come from oil and gas? Does it come from natural gas? Does it come from windmills? Does it come from solar? And in fact, we're starting to see some of these massive data centers that are being built- Yeah. ... being built in areas where they can benefit from renewables, whether it's wind or solar-
Speaker 1 (24:55):
Or space.
Speaker 2 (24:56):
Or space, exactly. <laugh> Yeah. Which, which a lot of people were discounting as little as a year ago, and now there's some amazing companies getting funded that are gonna put data centers in space.
Speaker 1 (25:05):
Absolutely. Absolutely. I mean, it's interesting because there's a, a fairly large number of companies in the IPO pipeline- Yeah. ... that are looking at, uh, whether it's providing the production capabilities for companies to actually launch data centers in space or providing infrastructure around that, uh, it's a big part of their growth narrative.
Speaker 2 (25:22):
It, it's totally changed the calculus, right? Like, even here on Earth, if you're gonna build a data center, you're probably looking up in the Nordics where it's cool-
Speaker 1 (25:30):
Yeah.
Speaker 2 (25:30):
... right? Where- Yeah. ... you don't have this heat problem. Right. And, uh-
Speaker 1 (25:33):
Unless a regulatory constraint too- Yeah. ...
Speaker 2 (25:35):
Which is
Speaker 1 (25:35):
The other issue.
Speaker 2 (25:36):
Yeah, that's right. Yeah. That's right. Yeah. So it, I think that part of the market will be really interesting to watch and I think the question I have for the US, if we're not investing in that type of infrastructure, renewable infrastructure, are we at a disadvantage down the road when it actually becomes strategic to actually own that type of infrastructure? Right.
Speaker 1 (25:52):
Yeah. 'Cause you mentioned earlier, you know, probably the biggest, uh, investor in that space is probably China. Yeah. Um, they've been making a, you know, very strategic, very long-term bet, whether it's, you know, battery, uh, innovation or, uh, solar power generation, they're probably the best positioned in that front. Yeah. So where do you see some of the areas that the US is probably best positioned in terms of the renewable space,
Speaker 2 (26:16):
That's, uh, well, obviously we have access to oil and through fracking. So- Right. ... this whole straight home or moves, you know, we, we had a, played a significant role in creating that problem, but we're not actually suffering as much- Right. ... from that problem. Right. So I, I think, uh, that, and, and also through technology, right? Technology and innovation is going to allow us to run some of these consumers of power and compute in a much more efficient way- Yeah. ... than we can right now.
Speaker 1 (26:43):
Absolutely.
Speaker 2 (26:44):
Yeah.
Speaker 1 (26:44):
Absolutely.
Speaker 2 (26:45):
You know, it's, it's interesting. We're, we're gonna be publishing a paper, uh, either tomorrow or early next week that talks about the redefinition of sovereignty through an investor's lens and it talks about all of these strategic positions at major blocks around the world, whether it's the US, Europe, China, or the Middle East are taking, but then it also talks about these idiosyncratic others that might be Israel, it might be Turkey and, and what role do they play in this new global economy that we're going into? And then finally, it's the pseudo sovereigns, right? They own all the technology- Yeah. ... they own the, the infrastructure and they deserve a seat at this, like, sovereignty table as well. Right,
Speaker 1 (27:22):
Right, right. And they're well capitalized.
Speaker 2 (27:24):
Yeah, that's right.
Speaker 1 (27:25):
Yeah. And-
Speaker 2 (27:25):
That's right.
Speaker 1 (27:26):
Can you give us a little preview of some of the takeaways and the kind of broad themes that are gonna come out of that piece?
Speaker 2 (27:30):
So I, I think the headline here is, uh, and we touched on this, it, it, it used to be one big global economy- Yeah. ... and, and now it's not. We're investing in resilience, we're investing in national defense and everybody's kind of looking out a litle bit for themselves. Yeah. Right? And, and capital could be the kingmaker here. So those that have access to capital are probably gonna be the ones that win in this new world of, uh, competitive advantage. Yeah. Yeah. I call it, I call it Porter cl- crowding out Ricardo- <laugh> ... Where comparative advantage is now being displaced by competitive advantage.
Speaker 1 (28:05):
I mean, I guess in a big picture theme that kind of helps or benefits the US, you know, center of capitalism, center of capital markets, largest developed capital markets. Yeah. Um, do you kind of agree with that narrative or how do you see that
Speaker 2 (28:17):
Playing out? I, I do. And, and I spend a lot of my time traveling around the world. Yeah. And, and frankly, the US has alienated itself from certain parts of the world, but generally I'd say investors take a view that you need to be investing- Yeah. ...
Speaker 3 (28:30):
In
Speaker 2 (28:31):
The US. So if, if capital is there and it's available, I think the US has all of the other variables that you need to maintain a leadership position a- as, as a block, right? Yes. But does it maintain the leadership position as the kind of global, uh, uh, caretaker of the world? I, I, I think we've kind of moved away from that, right?
Speaker 1 (28:53):
Right,
Speaker 2 (28:53):
Right. Yeah. Caretaker's probably the wrong word, but, uh- Yeah. <laugh>
Speaker 1 (28:57):
It's probably, it's probably true. Yeah. Uh- But I, I imagine you probably have the same observation that I have when I meet companies that are private as well when they look at the ecosystem of potential investors, whether it's public or private- Yeah. ... the US marketplace from a capital markets perspective is almost unrivaled. Yeah. Um, there are obviously some fantastic investors outside of the US, but the complexity, the depth of capital in the US markets is very, very difficult to compete against. Yeah.
Speaker 2 (29:23):
I mean, this is ... So people talk about the bipolar world- Yeah. ... or the multipolar world, uh, is it China, US dominated and this is kinda where the, the Middle East sits in an interesting place- Yeah, yeah. ... because they are the source of capital and they can play both sides. Right. Right? Where it's probably not as easy for the US to invest in China or vice versa.
Speaker 1 (29:41):
Exactly.
Speaker 2 (29:42):
Yeah.
Speaker 1 (29:42):
Exactly.
Speaker 2 (29:43):
Yeah.
Speaker 1 (29:43):
Excellent. What are some other interesting themes that are coming out of the next research piece that you're, you're working on?
Speaker 2 (29:47):
Uh, so I, I think the, the part that we're gonna continue on in this research piece I just told you about is the pseudo sovereigns and the- Yeah. ... the role that they play, you know, where sovereignty is no longer defined by geographic borders. It ... Actually moves into the, in, into the, the data world, right? Yeah. The, the, the, the digital world. And, uh, and as a result, you know, you don't, you look at recent events where Meta tried to buy Manis and it got called off by the Chinese government or the conflict that Anthropic had with the Pentagon, right? Yeah. Like all of this stuff is converging and it's really, really fascinating.
Speaker 1 (30:24):
Yeah.
Speaker 2 (30:24):
Yeah. Yeah. Yeah.
Speaker 1 (30:25):
And I guess kind of before we, uh, we leave for today, give us kind of like three takeaways, how you're thinking about the world. What are the three opportunities that you see? What are the three risks that you see in the marketplace right now?
Speaker 2 (30:35):
Yeah, look, I'm gona go really macro on this because they, they are the opportunities for investors to outperform and they're also the risks if they don't take them seriously. The first is because of the complexity of the world and because of the dispersion that I talked about, I think really informed portfolio construction is critical, right? And there's, there's data that you can use to inform you to kind of build the optimal portfolio. Second is diversification, which is fundamental, but- Yeah. ... sometimes we lose sight of it. Uh, there was a period of time where investors said, they looked at the software space and they said, "I should invest in nothing other than software." Right. "Today that looks like a mistake." But the final one is, uh, investors should always be underwriting and re-underwriting their existing portfolios. Um, in the case of SpaceX, there were some investors that were brought a liquidity option five years ago when it was valued at $100 billion and it was a phenomenal deal.
Speaker 2 (31:31):
Some decided to take that liquidity, uh, they, they like what I'm saying. <laugh> Some decided to take- They agree with you. <laugh> What have been a terrible idea for them. <laugh> But look, look, some decided to take that liquidity, some decided to re-underwrite the company- Yeah. ... and now it's 10 to 15X later on, on their money. So these are very fundamental- Yeah. ... but I think we're in a world right now where you need to not lose sight of the fundamentals.
Speaker 1 (31:54):
Yeah.
Speaker 2 (31:54):
Yeah.
Speaker 1 (31:54):
And then on the other side, if you look at kind of three things to be wary of, three things to look out for coming forward to the next, uh, next year.
Speaker 2 (32:02):
What, what I, this is, again, very macro it's, it's the consensus risk trap. When, if, I would tell any investor, if somebody's sitting across the table from you selling you a strategy and telling you it's the golden age of, you should at least pause and reassess every variable- Yeah. ... that you're assuming because I don't think we should ever be that blind to the risks that live around the corners. Uh, you know, to the extent that you be, can be contrarian in parts of an asset class that you know have, uh, long-term durability, you should probably do that. Yeah. Yeah. And, and we, we kind of touched on that a little bit in software. Everybody's running away from software right now. Well, maybe now's the time you should be leaning in and you shouldn't have been investing when it was the golden age of SaaS.
Speaker 2 (32:45):
Right.
Speaker 1 (32:45):
<laugh> Right. Exactly, exactly. <laugh>
Speaker 2 (32:49):
So those, I mean, I mean, I
Speaker 1 (32:50):
Hope that answers your question. No, absolutely, absolutely. It, in many ways, it's kind of like it's back to the basics, right? It's like- Yeah. ... take a nuanced view, be diversified, focus on the fundamentals.
Speaker 2 (33:01):
But, but I do think, you know, in the public market world, they call it active management- Yeah. ... versus passive investing. Yeah. And in our world, it's different, but it really is about the individual underwrite because the, if you just choose the software sector, the AI business model disruption affects different companies in different ways. Yeah. Yeah. And what you bought in at verse and how you capitalized your company is going to affect different companies in different ways. So you can't paint it with a, a broad brush.
Speaker 1 (33:29):
Absolutely. Yeah. Absolutely.
Speaker 2 (33:31):
Yeah.
Speaker 1 (33:31):
Great.
Speaker 2 (33:32):
Thanks, Michael.
Speaker 1 (33:32):
Scott, thanks a lot for having me. Thanks. Thank you for being here. I really appreciate it. I appreciate it. That was great. It was a lot of fun. Thank you. Thank you.
Speaker 3 (33:39):
That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen and follow us on X at IcehousePodcast. From the New York Stock Exchange, we'll talk to you again next week inside The Ice House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither Ice nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.